The Australian Taxation Office (ATO) wrote off almost $1 million in interest and penalties owed by one of Paul Keating’s companies in 2015, in an abrupt about face after negotiations with the former prime minister and his financial advisers.
This was unusual because for most taxpayers, formally challenging such a decision would require them to contest the matter in the Federal Court.
In this case, the payment notice was cancelled after a negotiation, raising questions about the treatment of powerful people by Australia’s chief revenue collection agency.
It also raises questions about a lack of transparency in how the tax office conducts confidential settlements.
Four Corners does not suggest any wrongdoing by Mr Keating or his advisers in seeking to have the debt cancelled.
Four Corners first contacted Mr Keating two weeks ago to request an interview about how this settlement came about, but he declined.
Negotiating with the tax office
The interest and penalties bill was issued after the ATO discovered in 2012 that Mr Keating’s company, Brenlex Pty Ltd, had not reported profits from an earlier share sale.
This followed a 2010 agreement by Mr Keating to settle tax liabilities of more than $3 million involving another of his companies, Verenna Pty Ltd.
At the time, Mr Keating was questioned about his other companies, including Brenlex, and his advisers confirmed it had paid a significant amount of tax relating to the sale of shares and was up to date with its tax liabilities.
Mr Keating agreed he would ensure his tax affairs were in order henceforth.
The ATO discovered in 2012 that Paul Keating’s company had not reported profits from a 2004 share sale. (ABC News: Tim Swanston)
However, the ATO later discovered that Brenlex owed $446,000 in tax from the sale of shares years earlier in Lake Technology, an audio engineering company Mr Keating had advised.
Brenlex agreed to pay the tax debt, but the ATO demanded more than $600,000 in interest and penalties which had accrued in the years since Mr Keating sold the shares. These are known as a general interest charge (GIC) and late lodgement penalties.
Mr Keating’s advisers fought to avoid the interest and penalties, asking the tax office to write them off entirely via an ATO rule known as a “Commissioner’s discretion”.
The argument went back and forth through 2013 and 2014. By October 2014, the debt had grown to $904,000, at which point the ATO sent a formal notice to not waive the interest and penalties charge.
“Your request has been fully considered and it has been decided that on this occasion the circumstances detailed do not warrant remission of the GIC,” the notice said.
“There is a clear acknowledgement that the Company should have accounted for the disposal of shares in the relevant financial years returns and did not.”
In April the next year, the ATO issued Brenlex a formal creditor’s statutory demand to pay the debt within 21 days, which had now grown to $953,396.
Mr Keating then became involved in the correspondence as part of efforts by his advisers to persuade the ATO to waive the bill because, they said, it was an honest mistake.
Mr Keating’s advisers told the tax office the former prime minister had mistakenly believed his company Brenlex had paid the tax.
Paul Keating has been involved in a number of businesses since leaving parliament in 1996. (Reuters: Claro Cortes)
They argued he had “inadvertently failed to advise his directors” of the sale, despite filing a substantial shareholder notice reporting the disposal of the Lake Technology shares.
Mr Keating’s advisers argued “the lodgement and payment of the Company returns were overlooked” but the tax office said “This is not a valid justification”.
The ATO was told Mr Keating had truly, though incorrectly, believed that all tax matters with Brenlex were up to date.
The tax office refused to alter its position. In July 2015, a last-ditch letter from Brenlex was sent to the ATO requesting a meeting.
Ten days later, the tax office made a backflip. In a four-line email it wrote off the almost $1 million debt.
“I am able to confirm that the GIC and Late Lodgement Penalties … have been remitted in full,” the email said. “Consequently the balance of the account has been reduced to nil and the amount payable as stated in the Creditors Statutory Demand is no longer owed.”
The email gave no reason for the sudden change of heart.
‘A level playing field’
The ATO’s reversal of its decision, having issued the October 2014 notice, was unusual.
Just how unusual can be seen from a joint submission to a Senate committee this year by five accounting bodies.
The Tax Ombudsman is currently scrutinising the management of general interest charges. (Four Corners)
They said it was unfair that the only recourse available to taxpayers to challenge this kind of decision was an appeal to the Federal Court, which was a “lengthy and complex process that is out of reach of most taxpayers”.
They complained that these decisions were “not subject to an internal ATO review. The only recourse available to the taxpayer is to appeal the ATO’s decision in the Federal Court”.
In a reminder published on its website last month, the ATO said: “Taxpayers should be aware that remission requests are carefully assessed to ensure a level playing field for those taxpayers who pay on time.”
These revelations come at a time when the ATO’s handling of this issue is under review. The Tax Ombudsman is scrutinising the management of general interest charges, to ensure “decisions are fair and reasonable and are made consistently for taxpayers in like circumstances”.
Typically, the ATO does not comment on the tax affairs of specific taxpayers due to confidentiality obligations.
It told Four Corners in a statement that “inadvertently overlooking” the need to pay tax was generally not valid grounds on which to cancel GIC.
“However, there may be instances where GIC is remitted when a taxpayer inadvertently overlooks the requirement to lodge a form or make a payment, depending on the individual circumstances of the taxpayer,” the ATO said.
